The interest rate of an existing home loan and the flexibility the financing institution offers determines whether one continues with the same loan or thinks of a switch. For a lower interest rate and/or other advantages, customers can transfer the outstanding balance to another financial institution or bank. The new finance company pays the old lender the outstanding principal due on the loan.

Who is eligible?

A borrower who has a paid at least 12 EMIs and has a decent credit rating is most likely to get balance transfer offers from other housing finance lenders. The lending institution may also prescribe minimum loan amount eligible for balance transfer.

Application

A new housing loan application must be made to the new lending institution. Some housing finance companies offer online application facilities to complete this process.

Documents

Documents such as photograph, bank statements, photocopies of identity and address proof, income documents need to be provided. In addition, the following documents will be required:

A letter on the letterhead of the existing lending institution stating the list of property documents held by them.

Latest outstanding balance letter from the lending institution.

Photocopy of property documents.

Foreclosure of existing loan

Foreclosure formalities need to be carried out for the existing loan. The new lending institution may make a payment of the outstanding principal amount in order to release the original documents from the previous lending institution.

New loan agreement

A new loan agreement is entered between the new housing finance institution and the borrower.

Points to note

Consider costs involved before taking the decision to do a balance transfer.

As per RBI norms, no foreclosure charges shall be levied on floating interest rate loan to individuals by the earlier housing finance institution.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

Purchasing a house is a major financial decision. It requires large investment due to high property rates across leading cities in India. Higher property rates would mean higher loans but sometimes, single income is not enough to make one eligible for a higher amount that one requires. Under such conditions, a joint home loan is a suitable option which helps you to get higher credit/loan. In simple terms, it just means 2 applicants applying for a home loan to purchase a house. With additional income of the co- applicant being considered for eligibility, the affordability towards availing a home loan shoots up

Most lenders consider the following parties as eligible co-applicant of a joint home loan:

What parties can be co-applicant?

Married couples

Father and son (son being the primary owner in case of multiple heirs)

Father and unmarried daughter (daughter being the primary owner of the property)

Mother and unmarried daughter

Brothers (in case of co-owned property)

What parties cannot be co-applicants?

Sisters, brother-sister, cousins, friends and unmarried partners may not be considered as eligible co-applicants.

What are the main benefits of a Joint home loan?

Ability to get higher loan: A joint home loan – sanctioned on the basis of the combined earning capacity of the co-applicant – lets you borrow a significantly higher amount. You can thus purchase that larger or a more expensive house that you longed for, by taking a joint home loan.

Higher tax saving (on combined basis): All the co-owners can avail tax benefits on a joint home loan. Each co-owner, who is also a co-applicant, can claim the following benefits:

Tax ceiling

Exemption of up to Rs.1.5 lakh on repayment of principal amount of home loan (Section 80C of the Income Tax Act) for each co-applicant

Exemption of up to Rs.2 lakh on interest paid on home loan (Section 24 of the Income Tax Act) for each co-applicant

Explaining the tax benefit with an example

The tax benefits are computed on the basis of the proportion of home loan taken by the co-applicants. For example, if there are two co-applicants who have taken a joint home loan of Rs.20 lakh (where the first applicant is sanctioned Rs.12 lakh based on his borrowing ability and the second applicant is sanctioned the balance Rs.8 lakh), the proportion of borrowing is 60% (first applicant) and 40% (second applicant). In this case, 60% of the loan repayment and interest paid is considered as the tax benefit available for the first applicant, while the balance 40% is the tax benefit available for the second applicant.

By taking a joint home loan, the co-applicants can claim higher tax benefits than the benefits that can be taken by a single applicant. Here is an example to explain this:

Individual vs Joint home loan – Tax benefit scenario

Type of Home Loan

Annual Interest Payment

Maximum Tax Benefit (under Section 24 of the Income Tax Act)

Home Loan taken by individual applicant

Rs.4.0 lakh

Rs.1.5 lakh

Joint Home Loan taken by two co-applicants (in equal proportion)

Rs.4.0 lakh

Rs.1.5 lakh each or Rs.3 lakh on combined basis

As seen above, in case of joint borrowing, higher tax savings are possible. To avail the tax benefits, you need to furnish a home sharing agreement indicating the ownership proportion on a stamp paper.

Important things to consider before you take a joint home loan:

The co-applicant may not be the co-owners of the property; however, most lenders insist that all the co-owners should be the co-applicant of a joint home loan.

All co-applicant are jointly and severally liable to repay the loan. Default in payment by one applicant may adversely affect the credit score of all the applicant.

It is advisable for co-applicant to take separate life insurance to reduce the financial burden in case of death of any applicant.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

Principal repayment of home loan

The principal repayment component in the home loan EMI is allowed as deduction under Section 80C of the Income Tax Act.

The maximum tax deduction allowed under Section 80C is 1.5 lakh, which includes investments in other instruments also.

This deduction is allowed only after the construction is complete and completion certificate is awarded to the buyer.

Payment made towards stamp duty and registration charges are also allowed to be claimed under Section 80C in year in which paid.

In case the assesse transfers property on which he has claimed tax deduction under Sec 80C before 5 years, deduction claimed shall be deemed as income in year that the property was sold and taxed accordingly.

Tax benefit on home loan interest

The interest component in the EMI can be claimed as deduction from “income from house and property“ under Section 24 of the Income Tax Act.

The maximum tax deduction allowed under Section 24 is 2 lakh for self-occupied property and if the property is not self-occupied, there is no maximum limit.

The interest payments for the year shall result in a loss under the head “income from house property“ which can be adjusted in the same year against other heads of income including salary.

If the property is not completed within three years from when the loan was taken, then the interest benefit drops to 30,000.

The pre-construction interest can be claimed from the year when the construction is complete in five equal installments.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

What are charges you may have to pay while taking a Home Loan?

Processing Fee :
Processing Fee is a fee charged by the lender to service the cost of the credit appraisal. This fee can be ranging from 10,000/- upto as high as 1% of the loan amount depending upon (i) Profile of the borrower, (ii) Product that you choose, (iii) Income sufficiency in available documents, (iv) Profession of the borrower, etc.

Legal Fee:
Most lenders engage external law-firms to scrutinize the legal documents of the borrowers. Generally lenders absorb this cost in the processing fee itself. But some PSU lenders take the fee separately from the borrowers.

Franking Fee on the loan agreement:
Some States in India do not have it at all, some have 0.1%-0.2% of the loan amount being payable. For example, if you are taking a 1.50 crores loan, then the stamp charges payable is 30,000/- in Maharashtra & Karnataka.

Application Fee:
Banks take a minimal fee to cover their preliminary expenses towards home, office verification etc. This can range between 1000/- to 5000/- depending upon the lender.

Administrative Fee:
Some lenders split the processing fee into two parts. The one charged after the loan is sanctioned is called administration fee.

Technical evaluation Fee:
For properties which are of high value(depends on lender to lender as to which value they consider as high), there are two valuations done for higher caution. The lower of the two valuations is considered for the lending. Fees if not absorbed by the lender, is collected from the borrower by some PSU lenders.

Franking Fee on the sale agreement:
In some states of India, there is a stamp duty payable on the property agreement with the builder or seller. This used to be a flat fee of 200/- earlier but now been revised to 0.1% of the property cost subject to a maximum of 20,000/-. The good news is, in those states which follow this, allow adjusting the amounts with the final property registration deed upon submission of the agreement in which the fee was paid to the Sub-registrar’s office.

Intimation of Registration:
Intimation to the Sub-registrar’s office is a new introduction of process in Maharashtra. Generally not done by any other States as of now. Though the cost is very low, only 1300/-, but to visit the SRO and doing it is tedious.

Notary:
If you are an NRI, then all your KYC and the POA(power of attorney) you are executing, depending on the bank’s requirement, needs to be notarized by the Indian Embassy or a local Notary available abroad.

Adjudication Fee:
To start the process for a home loan application, if you are the POA-holder of an NRI, the notarized POA needs to be adjudicated here in India before submission to the lender.

Indemnity:
This is the way you safe-keep the interest of the lender. the documents reads that if there is any issue because of unavailability of the said document, the sole responsibility is on the borrower and that the borrower indemnifies that the cost of such risk will be completely bourne by the borrower and not the lender. There could be indemnification required for many aspects in your borrowing. For example, if the builder is yet to receive some minor approval from authority or the property tax is yet to be paid completely by the seller or the ‘Khata'(in Karnataka) is not yet transferred in the seller’s name though the deed is registered in his name or the OC(occupancy certificate) is yet to be received by the builder, then the borrower needs to indemnify the lender. There is stamp fee of a few hundred rupees(depending upon the State) and a notarization may also be required.

Mandatory Fire Insurance:
Most lenders who are having a wing of bank assurance insist on this. This is just a list of expenses a borrower might incur.

Documentation Fee:
For getting the loan agreement signed, getting the ECS mandate activated or a few other formalities, few lenders still do charge this fee. This is generally nominal, 500/- to 2000/- approximately.

A home purchase is probably the biggest financial decision and transaction in a person’s financial life. It is a decision that has an impact for many years to come. It is also a transaction that requires planning around your income outflow for many years to come.

A home loan is a prolonged financial commitment that typically stretches for 20 to 30 years during which time, interest rates can change, depending on the economic environment of our country. Considering this, home loan providers give you two options with regard to interest rates. One is the fixed rate and the other is the floating rate.

As evident from their names, the fixed rate loan comes at a per-specified interest rate for a certain period, after which it is repayable at a floating rate; in the case of a floating rate loan, the rate can vary throughout the loan tenure as it is tied to a reference interest rate which changes based on economic compulsions. Each has its own attributes and either can be chosen based on your requirement.

Here’s a look:

Fixed rate home loan

Safety from Fluctuations for a predetermined period of time: There could be instances when economic conditions result in an increase in interest rates in general. Opting for a fixed rate gives you a shield against such fluctuations initially and you will be paying a fixed amount of EMI each month during the fixed term. However, after the fixed term is over, your rate of interest will move to a floating plan, e.g., if you have opted for a 5-year fixed term plan, then from the 6th year onwards, your home loan will be subject to the current floating rate of interest. So during the time your interest is fixed, you do not have to keep watching over your shoulders to see where the interest rates are headed

Floating Rate Home Loan

Marginally cheaper: Floating rate loans generally carry a slightly lower rate of interest since there is a fluctuation dependency on economic conditions like inflation or growth factor etc. The lender hikes or reduces the rate based on the market conditions. So a floating rate can turn out to be most beneficial during low inflation period.

Lower EMI when rates fall: If interest rates remain static or are on a downward trend, you could save money in a floating rate loan as you benefit from the fall in interest rates.

In a nutshell:

The type of loan you should go in for depends on your needs. It’s up to the borrower to decide what to opt for based on what suits him/her the best. If your foremost concern is safety and certainty, you may opt for a fixed rate of interest at the cost of some interest rate premium or otherwise.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

Before applying for your home loan you should keep in mind some vital factors such as

Rate of interest

Interest rate determines the amount of EMI you will pay. Select a viable percentage which doesn’t pinch your pocket too much and moreover, doesn’t eat up all your income. Home loans generally have 2 kinds of interest rates i.e. fixed and floating. In case of fixed, the rate of interest doesn’t change whereas in floating, it fluctuates as per market conditions and change in government policies. Consumers have an option of switching from fixed to floating or vice versa at any point of time during their loan tenure. Nonetheless, banks may charge a fee for the switch or in some cases the facility might not be available in your chosen home loan. Always clarify these doubts to avoid any hassles later. In addition, it is a good idea to get your credit score from CIBIL prior to applying for a home loan to receive competitive rate of interest and higher financing.

Processing fees

Each home loan lender charges a certain amount of processing expenses for carrying out the necessary documentation of your loan. This fee is generally 0.25% to 2% of the loan sum. Although it seems like a small amount, it can increase your home loan expenditure considerably. Some banks offer schemes in which the processing charges are waived in order to draw more buyers. Try and look for banks which levy minimum or no such fees.

Documents required

Apart from the basic application form, most home loan companies ask for documents such as residence and valid photo ID proof, bank statements, salary slips, income tax returns, processing fee cheques etc. However, it might vary at times so it’s suggested that you verify if there are any other documents which need to be submitted. Incorrect/late documentation can hamper the loan approval process.

Sanction Period

Usually, home loan approval takes approximately 5-7 days if all the documents are correct. But this duration may vary for different banks. Do some research online or speak to friends who have opted for home loans and understand which bank has a good reputation and efficient disbursement.